Tax reform discussion Thursday mostly concerned with business impacts

House Bill 2830 would replace Oregon’s corporate income tax with a gross receipts tax and send that money to a new Education Strategic Investment Fund. Legislative Revenue Officer Paul Warner laid out the expected financial impacts of the change for the Joint Tax Reform Committee.

The bill is an effort to require more businesses to pay state taxes and to move Oregon away from its high reliance on volatile personal income taxes. The bill has varying commercial activity tax rates for companies involved in services, retail and trade, wholesale, natural resources, and “all others,” with a flat $250 tax for receipts of less than $3 million. The $3 million threshold would exempt most Oregon small businesses.

Rep. Pam Marsh (D-Ashland) and Rep. Barbara Smith Warner (D-Portland) urged their colleagues to keep in mind the human effects from the bill.

“There are other residual benefits that come to this in the increase in funding of education, human services, etc.,” Smith Warner said. “Just a reminder to always look at the broader perspective and not just stick with the economists who only have two opinions because they have that many hands.”

The Legislative Revenue Office estimates the tax reform would increase state revenue by $898 million in the phase-in biennium of 2017-19 and by $1.2 billion in 2019-21 when it is fully implemented. Out-of-state stockholders and customers would pick up some of the cost, but some of the tax increase would be passed on to Oregon residents in the guise of increased prices.

To offset that, HB 2830 also includes tax cuts for taxable earnings of less than $14,000. Revenue office estimates show that households earning between $20,587 and $48,036 would end up with slightly more household income when factoring tax cuts and expected price increases.

HB 2830 divides the Education Strategic Investment Fund, with 70 percent of the fund going to K-12 education, 20 percent to the Public University Fund, and 10 percent to the Community College Support Fund. In 2019-21, when the law is fully implemented, the state estimates the tax would send $2.3 billion to the Education Strategic Investment Fund.

The 2017-19 phase-in biennium has a mix of the new commercial activities tax and the corporate income tax. It would generate an estimated state revenue increase of $898 million, with $470 million of it dedicated to the education fund. School business officials say they need $8.4 billion in the State School Fund for 2017-19 to maintain current service levels, $200 million more than legislation currently in the House.

Dozens of education advocates and businesses submitted testimony for and against the bill at public hearings Tuesday. Proponents focused on stabilizing Oregon’s revenue and supporting education.

“We are encouraged by the proposals in HB 2830, which, coupled with some cost containment proposals, will do much to address not only our current budget challenges but will provide much needed stability in state school funding for the future,” OSBA Board President Betty Reynolds said in written testimony.

Amendments refining the bill’s language are being prepared, and the Joint Tax Reform Committee will hold another work session on the amended bill Monday.